Guanxi is the direct translation of the word ‘relationship’ in Chinese. Harmonious integration between relationships and diligence has been widely acknowledged to be the two indispensable factors leading to sustainable success in firms, businesses, and industries. Nevertheless, in China, the trend seems to be shifting toward dependence on relationships as a shortcut. Please note that the relationship I’m addressing isn’t the traditional, benign relationship–treating everyone with respect, and warmth one holds, but one’s a deliberate approach to seeking ties with their superior in the hierarchy. Rather than devoting additional time and effort to polishing one’s skills and work, workers, companies, and even government officials approach their job with the intention of pleasing their superiors. This intricate network of social connections and personal relationships severely influences business transactions and decision-making processes within the hierarchy. Therefore, in this letter, I will address certain aspects of the severity of such ill-advised practices. It is most definitely certain that I’m not challenging your way of thinking, and business management skills, but solely setting forth this notion. 

A relationship is benign, beneficial, and undoubtedly crucial in the business system only fcomwhen it doesn’t exceed its original role and value in a balanced business environment. In a business system protruded by distorted relationships as mentioned, nepotism, lack of transparency, and corruption will be widespread, causing devastating impacts. Foremost, nepotism and favoritism establish an environment in which guanxi such as family connections or personal preferences help employers favor their relatives or friends, even if they aren’t sufficiently competent for the position offered. Although at times employers are pressured by families, being obligated to favor ones with connections, the outcomes are equivalent. Thus, personal connections take precedence over merit and qualifications; if the preferred one is high in position, it results in a lack of equal opportunity for career advancement…otherwise, it’s still a wasted position with little value if not a hindrance to the company’s growth. 

As the JPMorgan Chase incident indicated, the act of Nepotism not only unfairly procures job opportunities for individuals with family, and business relationships but can eventually grow into exacerbated legal issues. In 2011, an employee of the company demanded a permanent position for their relatives. According to a statement released by the Justice Department, despite their undeniable underperformance, the relative was granted a job position. JPMorgan says, "because the "deal is large enough [and they] are pregnant enough with [that] person, that we'd be crazy not to accommodate her father's wants" (Zarroli 2016, 1). In 2009, “chairman of the China Everbright Group – a conglomerate controlled by the Chinese government”(Cammeron 2014, 1) insisted on providing a candidate, his biological son, a permanent position in the company: he claimed that in doing so would facilitate business with the Chinese companies. A New York Times report, citing a confidential US document,  revealed the deal’s promise to “help the bank win lucrative business in the booming nation” (Zarroli 2016, 1). Although this practice of Nepotism helped the bank score multiple ‘coveted’ assignments from Everbright, it eventually settled with JPMorgan paying a 264 million dollar fine divided between the Justice Department, the Securities and Exchange Commission, and the Federal Reserve.

Meanwhile, the intricacy of such affinities leads to a lack of accountability and transparency, which triggers a chain reaction of toxic interactions within businesses. In most cases, a fostered culture of secrecy and opaqueness develops into impaired decision-making, weakened team dynamics, and essentially corruption. When it comes to decision-making, choices driven by one’s interests or obligations rather than what is most beneficial to the company threaten the efficacy of such decisions. This can deter innovation as well as limit the company’s ability to adapt to fluctuating market conditions. In extreme scenarios, having special connections can develop into corruption: relationships may be exploited for private gains, such as kickbacks and bribery. In such cases, guanxi puts businesses on the verge of facing legal and reputational consequences. Finally, weakened team dynamics have often been an indirect but crucial factor determining a business's regular function. In a system with unbalanced values of individuals, collaboration and knowledge-sharing amongst employees are limited, which can hinder overall productivity and thus impede the company's growth. 

Above are the general impacts having guanxi within a company can bring about. Actions ought to be taken rapidly in order to combat the potentially corrupting sections of the company. However, if the presence of specific obligations and pressure hinders the approach to eradicate guanxi, seeking an approach to at least better the outcome for shareholders would be ideal. In other words, what can shareholders practice to self-maximize with the presence of such matters. Similar to this toxic environment stands Jack Welch’s "Rank-and-Yank" system. In the 1980s, Jack Welch, former CEO of General Electric, proposed a business model that ranks employees based on their performance and then systematically removing the bottom-performing, specifically the 10 percent, individuals from the company. Strictly following ranking rubrics such as sales figures and performance metrics, all workers will be exploited to their greatest extent, squeezed, in other words. Establishing this meritocracy will not only always ensure fresh and effective labor but also fully utilize the pre-existing toxic environment due to guanxi. Nonetheless, there is one prerequisite. The free labor force in the market ought to be more than = sufficient in order to guarantee a constant supply of competent workers when individuals get eliminated or quit due to pressure. 

The rooted importance of guanxi in Chinese businesses can potentially be altered through several approaches upon getting rid of one granted employment through connections. To begin with, companies should foster transparent policies that are merit-based. During the stages of hiring, a list of promotion, hiring, and decision-making standards ought to be publicly displayed. Entering into the working season, the company should establish a reward system mainly based on measurable criteria that assess employees objectively, based on their performances, skills, and profits. In doing so, transparency of opportunities for promotion and reward also promotes workers’ efficiency, which was widely adopted by companies alternatively to Jack Welch’s extreme approach. Moreover, the company should constantly educate employees on professional ethics, including the skills to foster an inclusive work environment. For instance, a learning institution named Andover in Shanghai takes their employees on annual international trips such to Morocco, and the Maldives, covering all costs and providing top-tier experiences: such practices boosts employee’s morale and willingness to devote more time and effort to their job, despite already having considerable pressures in their everyday work. In the meantime, although contrasting the notion of maximizing shareholder benefit, the cost of annual traveling would merely be a fraction of the total annual profits. Finally, employers should set an example by demonstrating ethical behavior, behaving up to standards, and holding others accountable. When leaders uphold these values consistently, it sends a clear message throughout the organization that personal relationships should not take precedence over fairness and professionalism. 

In his 1888 article, Theses on Feuerbach, Karl Marx claimed, “Philosophers have hitherto only interpreted the world, in various ways; the point, however, is to change it.” Thus, I’m writing this letter to raise awareness of this specific sticky issue and express my desire to address this issue upon gaining interpretations of the world at UChicago. This specific type of relationship has continuously troubled the vast majority of employees, government officials, and economists. Few individuals have spoken up within their hierarchy due to fear of being eliminated; yielding to the reality of the lack of authority. This combination of the business terms and models, which we dealt with in class, in addition to my own understanding of this specific political economy issue in my country, is merely a glimpse of the matter. However, we ought to take the first step bravely into the sticky areas of the society.